Orange County’s ultra-tight industrial sector is resulting in record-breaking sale prices for the few buildings being added to the local market, and is apparently drawing more real estate investors and developers to the area.
The latest eye-opening deal came in Fullerton, where a new warehouse sold for what brokers described as a record-high comp for an owner-user deal in North OC.
San Clemente-based Big Deltivity LLC, which is affiliated with stand-up paddleboard maker and distributor Riviera Paddlesurf, recently closed on the purchase of 4150 West Palm St. just off Imperial Highway and about three miles west of the Orange (57) Freeway.
The 181,069-square-foot building traded hands for $32.5 million, or about $180 per square foot.
The buyer will shift to the new property manufacturing and warehouse operations of an apparel affiliate it operates in Whittier, where it had leased space, according to Daum Commercial Executive Vice President Casey Mungo, who represented the buyers.
The family-owned firm, which makes a variety of stand-up paddleboards, accessories and apparel, will maintain its headquarters in San Clemente, where it also owns a smaller industrial property, Mungo said.
“It was an opportunity for the buyer to obtain a class A building in a class A market, said Mungo, who works at Daum’s Gardena office.
The sales price is among the highest per square foot of the past 10 years for a North OC industrial building larger than 150,000 square feet, according to records of market tracker CoStar Group Inc.
The few area industrial properties that sold at higher prices also involved new buildings but were largely occupied and were sold to investors rather than owner-users, at the Anaheim Concourse development a few miles away, records show.
Those Anaheim buildings went for $188 to $195 per square foot in 2016 and 2017.
Big Deltivity’s purchase “demonstrates owner-occupiers are well capitalized to purchase properties at prices high enough to compete with investors,” noted a recent market report by the local office of brokerage JLL.
Sales prices for OC industrial buildings are generally up about 12% year-over-year, while rents are up by more than 6%, according to a review of local brokerage data.
From an owner’s perspective, North OC’s industrial market can’t be much better, noted brokers with CBRE Group Inc. who represented the seller of the Fullerton property, Newport Beach-based Western Realco.
North OC “is one of the strongest and tightest industrial markets in the country, in part due to its proximity to the Long Beach and Los Angeles ports. The area is a mature, fully developed, land-scarce market with few large-scale development opportunities,” CBRE said in a statement.
The county’s 230-million-square-foot industrial base has a 1.3% vacancy rate, a record low, according to CBRE.
Rents at high-end industrial buildings are up more than 50% since 2010, and projections show more increases this year, largely due to increased demand from e-commerce-related tenants, according to recent brokerage data from Cushman & Wakefield Inc. Monthly industrial rents average nearly 90 cents per square foot.
Beckman Beacon
The sale to Big Deltivity marks another notable transaction for Western Realco, one of the most active industrial property builders in OC since the recession.
It and financial partner AEW Capital Management in Los Angeles bought the nearly 8-acre West Palm Street site about two years ago from Irvine-based LBA Realty for a reported $11.8 million.
At the time, the site held an older 89,000-square-foot building that was razed to make way for the new warehouse, which features about 7,000 square feet of offices, 17 dock doors, and a large, fenced truck court.
“They were confident in the high demand for industrial space in the region,” said CBRE’s Sean Ward, who worked on the deal with colleagues Ben Seybold and Keith Greer.
The sale and high per-square-foot price also bode well for the developer as it works on a larger, high-profile industrial development a few blocks away. Last summer it broke ground on its largest-ever local project, a multibuilding business park on Fullerton land previously home to Beckman Coulter Inc.’s headquarters.
The 44-acre site, vacant except for a midsized office that will be redeveloped, is being turned into an eight-building project called Beckman Business Center totaling nearly a million square feet.
It’s the largest industrial project start in OC in about four years, and its first buildings should be completed this summer, ranging from 42,000 square feet to 309,000 square feet, both for sale and for lease.
Office to Industrial
Other developers with little local industrial presence appear to be taking notice at what investors and tenants will pay for upgraded area facilities.
The local office of Houston-based Hines this month announced its largest-ever industrial property acquisition in OC, for a 414,309-square-foot building on East Dyer Road in Santa Ana.
The vacant property a few blocks from the Costa Mesa (55) Freeway was previously used by Irvine-based carpet manufacturer Royalty Carpets, which closed last year. Hines paid $57 million, or about $138 per square foot, for the 64-year-old property, according to CoStar records.
That’s an uptick in pricing compared to the last big older, vacant industrial property that sold in OC: the 1.1-million-square-foot former J.C. Penney distribution center in Buena Park, which sold last year for roughly $126 per square foot to CenterPoint Properties in Oakbrook, Ill. The $131 million deal, which closed in April, also effectively marked CenterPoint’s entry into the area’s industrial market.
Hines’ purchase of the 515 E. Dyer property offers “strong visibility, flexibility, and scale in a highly desirable, 1%-vacant Orange County industrial market where this product type is largely being torn down for multifamily development,” the company said in a statement.
The buyer also pointed out that the facility represents “one of the few substantial blocks of industrial vacancy on the market today.”
It said it’s begun “a robust capital improvement plan” for the building, which includes a new roof, seismic retrofit, expanded trailer parking, office upgrades, landscaping and signage.
The deal offers “a great opportunity to plant an industrial flag for Hines in Southern California,” said the developer, which has made its mark in OC the past decade through the purchase of numerous office properties across the region.
Hines said it’s scouting other area industrial deals.
“We look forward to aggressively pursuing industrial deals of all types, including development, urban infill, sale leasebacks, etc.,” said Hines Senior Managing Partner Ray Lawler.
